Controversy over Lord Ashcroft's donations to the Conservative party deepened last night after Labour MPs demanded an urgent meeting with Britain's elections watchdog.

Placing more pressure on the Tories, Labour MPs want to know why the Electoral Commission's official inquiry into an Ashcroft-controlled company, which has given £3m to the party, has dragged on for 10 months and threatens to run into the general election campaign.

If the commission rules that the company was not trading, the Tories could be asked to pay an equivalent amount to the Treasury. The explosive issue of Ashcroft threatens to engulf the commission, which has been criticised before for dragging its heels while investigating serious complaints.

John Mann, the MP for Bassetlaw, has written to Peter Wardle, chief executive of the commission, requesting an urgent meeting to find out why the inquiry has taken so long. He asked Wardle to investigate in January whether Bearwood Corporate Services, Ashcroft's company, is trading in Britain or is being used to funnel money to the Conservatives from overseas. By law, a British political party can only accept a donation from someone registered to vote in the UK or from a company "carrying on business" here.

Paul Farrelly, the Labour MP for Newcastle-under-Lyme, has demanded to know whether the commission would complete its inquiries before the official election campaign because Ashcroft's money could be crucial to the result.

"The Electoral Commission needs to crack on with its investigation into the status of Ashcroft's companies to satisfy itself that all donations are not only legitimate, but transparent as well," he said.

"The danger is that the mismatch in resources is tantamount to the Tories trying to buy seats. For democracy's sake, I hope the electorate sees through this."

The commission began making inquiries into Bearwood's donations in October 2008 after concerns were raised that the company may not be a genuine UK trading company. Bearwood gave the Tories £1,600,893 in 2008 alone, making it the party's biggest source of funds that year. The company is known to have one UK client, because in 2008-09 the firm received $300,000 (£181,000) in consultancy fees from BCB Holdings, another Ashcroft company based in Belize.

Overseas residents can make donations to British political parties if they are made through British-registered companies that conduct most of their business in Britain.

The Lib Dems are also demanding action before the election. Lord Oakeshott, the party's treasury spokesman, said: "Democracy is in danger if Lord Ashcroft has been pouring millions into Conservative campaigns through an offshore pipeline from a Caribbean tax haven.

"The general election is already well under way, so the referee needs to say whether the Tory team is playing by the rules. It's pointless showing the red card after the match is over."

Ashcroft does not make donations to the Conservative party in an individual capacity because donors have to be listed on the electoral roll. He refuses to reveal whether he is registered to vote in Britain and he regards his tax affairs as private. Ashcroft is convinced that the commission will find nothing wrong with his donations to the Conservative party.

The Ashcroft inquiry is the second longest in the commission's history. It has also been criticised for taking more than a year to conclude its inquiry into a £2.4m donation given to the Liberal Democrats in 2005 by disgraced financier Michael Brown.

A spokeswoman for the Electoral Commission declined to say who was conducting the Ashcroft inquiry, or why it has taken so long. She also declined to say whether witnesses had been called, or if the inquiry would be concluded by May, when the general election is widely expected to be held.

She said: "We recognise that it is important to work as quickly as possible but our first priority is to conduct a fair and thorough investigation."